The employment numbers continue to be surprisingly strong, with a rise of 154,000 to 29.73 million in the October-December 2012 period, and a huge 584,000 increase over 12 months. Interestingly, the rise in employment was more than accounted for by an increase in full-time employment of 197,000 in the latest three months, with part-time employment down 43,000.

To put that in perspective for American readers, that would be the equivalent of 2.9 million jobs over 12 months in the US, far more than we’ve actually be able to generate. (America has roughly 5 times the population of the UK.)

How did this jobs miracle happen? Well let’s start with the fact that it may not have happened, the data might be wrong. After all, RGDP has been flat, and Britain has been in recession during much of this time.

If this refers to hourly nominal wages, it might help explain the jobs gains. If it’s not hourly data, it’s meaningless.

However NGDP growth also seems to have been slow. I say “seems” because Europe appears incapable of creating a St Louis Fred-type data set that doesn’t require a PhD in computer science to navigate. And then there’s the question of whether the Brits even know how to calculate NGDP; last time I looked they calculated RGDP one quarter before NGDP, which is, well, mathematically impossible.

So if it’s not NGDP, what is the explanation? Probably a combination of things. For instance, falling North Sea oil output diverts production from areas using very few workers per dollar of NGDP, to areas using lots of workers per dollar of NGDP.

NGDP, hourly nominal wages, and employment are the key macro variables. The goal is to stabilize employment growth (or more precisely to prevent suboptimal employment fluctuations due to sticky wages.) Stable NGDP growth helps, but is not perfect. In any case the UK could use a bit more monetary stimulus—it’s a pity that only three of their nine monetary policymakers understand that fact:

Also yesterday, three members of the Bank of England’s monetary policy committee – Sir Mervyn King, Paul Fisher and David Miles – voted to increase quantitative easing by £25 billion. This was a surprise. More here.

That doesn’t bode well for Mark Carney.

PS. Keynesian models are completely silent on the question of how much real output we can expect from a given rise in employment. That’s the supply-side of the economy, which the Keynesian multiplier model does not even attempt to explain.

Keep this in mind when you read prominent Keynesians telling us about the impact of the so-called “austerity” program adopted by the Cameron government. They aren’t even addressing the real puzzle–why so many jobs?

Regarding your point on monetary policy, hopefully there is some more hope – from the FT today:

“Paul Tucker, deputy governor for financial stability, was one of the six members voting for no change. However, Mr Tucker signalled on Tuesday that he and others on the committee were open to more quantitative easing.”

Along the lines of your oil story, what about a shift from finance to manufacturing or even other sorts of services like tourism?

Instead of paying one guy $500 million per year to provide the service of bring together borrowers and lenders in some new and exciting way, instead, $500 million is paid for 20,000 cooks and waiters to serve German tourists in restaurants.

Oh, better. Instead of paying $500 million to someone to help rich folks play some kind of fancy poker tied to borrowing and lending, $500 million is paid for 20,000 workers to serve drinks and food and sweep up in casinos were German tourists gamble in more obvious ways.

Today’s RGDP is just yesterday’s NGDP, isn’t it? If NGDP has been flat, so would RGDP be flat. RGDP doesn’t actually measure the output of real goods and services, it just measures the spending on them. RGDP is NGDP less inflation. All nominal statistics.

Is this chart not a chart of NGDP in the UK? I searched “GDP UK” and both this data and “Real GDP UK” data were options.

Assuming there was the kind of jobs growth reported, it could have been caused by a rise in overall demand for labor, at the expense of an overall decline in other spending, like capital goods, or consumer goods, or, shock!, government spending! That doesn’t need NGDP to rise.

First, the distinction between unemployed and otherwise inactive is total bullshit, and we should completely abolish the concept of “unemployment” and speak about working age employment to population ratios only.

Second, it’s mostly the end of early retirement behind this. Employment to population ratios rebound almost halfway to pre-recession levels, but workforce composition shifted towards older workers.

Ritwik, Because hourly wage data always refers to pay for 60 minutes, but (unless I’m mistaken) weekly pay data does not always refer to 40 hours, or indeed any fixed period. If I’m wrong then weekly data would be fine, but not annual data.

You tell me. What are you interested in, decision-theoretically? Getting people to work, or getting people to work at exactly 35.4 hours? Is the true unemployment rate today is 45% because average weekly hours are now 35 vs 60 in the industrial revolution?

Scott

So if I understand you, you choose hours because it is the smallest unit of time at which employers stop subdividing? As in, they vary # of hours/week but do not vary # of minutes worked per hour?

Fair point. However, is that true for the median/marginal worker/job? As in, suppose I get paid a $1000/week and I work 40 hours this week an 50 hours next week. My nominal wages per hour just went down and my ‘employment’ went up. But neither I nor my employer made the choice to vary that lever based upon either expectations of future sales or utility/disutility of leisure. It is endogenous to my job.

In other words, what if nominal wages/hour is an epiphenomenon? Wouldn’t you want to pick that time unit where nominal wages are actually the stickiest?

I once visited Marketmonetaristan, a quite scary land with the death penalty for anyone who wants to engage in free market money activity external to the “official” taxed currency:

“As long as NGDP growth is around 4%, long term nominal rates will remain relatively low. That’s the case regardless of whether the 4% NGDP growth is associated with o% RGDP growth and 4% inflation, 2% RGDP growth and 2% inflation, or 4% RGDP growth and 0% inflation.”

“..I’m looking for a number that measures the cost of employing labor for a fixed span of time”

I agree, and so I’m saying that the choice of this fixed span of time should be a function of how labour is actually hired – per week, per month, whatever.

So if someone hires me at $1000/week, and I report working 40 hours this week and 50 hours the next, my nominal wages/hour go up and down, but my nominal wages/week stay fixed. The nominal wages/(unit of time) series that shows the most stickiness is probably a good proxy for deciding what unit of time is labour typically contracted at, and hence what matters for nominal wage theories of unemployment.

Not sure if I was clear there. Think about it as ‘unpacking’ M*V. Would you unpack M*V simply because M and V varies? Both are endogenous epiphenomena. The economic phenomenon is NGDP = M*V. Similarly, are wages/hr and hrs/week both epiphenomena, with the real phenomenon being wages/week? What about wages/week and weeks/year? Etc.

Geoff, I have no idea what you are talking about, maybe someone else can figure it out. RGDP is a real variable.

Ritwik, Here’s the problem. Suppose workers are paid hourly, but the government reports their weekly wage. Then hours worked per week changes. The government would show a change in wage rates, whereas actual hourly wages would be unchanged.

Britmouse, Thanks. It is literally impossible to determine RGDP without prices. “Volume” would count a ton of iron and a ton of diamonds equally. Obviously the diamonds count for more in any sensible real GDP measure, hence you need prices. If they think they can measure RGDP without prices they are doing something wrong.

What is the “volume” of computers? That makes no sense, as quality changes over time. Is an iPad a computer?

Somehow I have the feeling that if I actually saw how NGDP were calculated in Britain, I’d be horrified.

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Welcome to a new blog on the endlessly perplexing problem of monetary policy. You’ll quickly notice that I am not a natural blogger, yet I feel compelled by recent events to give it a shot. Read more...

Bio

My name is Scott Sumner and I have taught economics at Bentley University for the past 27 years. I earned a BA in economics at Wisconsin and a PhD at Chicago. My research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. I had just begun research on the relationship between cultural values and neoliberal reforms, when I got pulled back into monetary economics by the current crisis.